The regulator has issued a discussion paper on tying and bundling of products with insurance policies
IRDA has recently issued a discussion paper to examine the issues related to tying and bundling insurance policies with other services and goods and how conflicts of interest that arise need to be dealt with.
According to IRDA, tying is defined as two or more products packaged together where at least one of the products is not sold separately while bundling occurs when products are packaged together but are also available separately.
These are the potential areas of conflict highlighted in the IRDA paper:
(a). The relationship between the distribution channel or a group entity and the targeted market segment. The relationship could be long standing involving trust and blind faith such as with travel agencies tempting the distributor to push a product to its customer involving a bias to not only sell without considering whether the customer requires the product but sell it with a provider (insurer) bias and/or a product ( a particular insurance policy) bias.
(b). The contractual relationship between the distribution channel and the insurance company could also lead to a push factor, such as whether it is a corporate agent ( no choice of provider and perhaps product) that is involved or a broker( involving choice of product and broker).
(c). Impact of the cost of the distribution channel on the contracting terms between the insurers and policyholders. Critical mass as a result of volumes involved makes it cheaper for the insurance company to engage a particular channel to mass sell thereby diluting the quality of disclosures and giving information or providing clarification.
(d). Marketing methodology that may lead to client confusion regarding the role of the distributor vis a vis the insurer. Bundling the insurance product with the particular product or service that is the primary business of the channel leaves the customer with no choice but to take the insurance product offered.
As per the regulator, one of the concerns that arise in tying insurance products with mutual funds is the manner in which this is advertised by the service provider. Providing information regarding the insurance cover is okay but highlighting that more than the core service being provided misleads the public, says IRDA.
The regulator also says that “white labeling” of insurance products is a concern while bundling group insurance cover with mutual funds is important because there are instances where the public is led to believe that the insurance cover is the main feature of the product that is being sold. “White labeling” of insurance products makes it difficult for them to differentiate between the core product and the incidental one.
IRDA also throws lights on new channel of distribution which are catching up now. It says that bancassurance is no longer the new channel; concepts such as mallassurance are catching up. This insurance distribution technique was first adopted by Future group who sold few insurance policies through Big Bazaar. “We are slowly seeing success in this model. It has taken time for this model to work in India,” said Krishmoorthy Rao, CEO and MD Future Generali General Insurance.
IRDA has put up few vital questions in the discussion paper like – Should IRDA allow bundling of insurance products with goods and services or not or allow this activity with some checks built in? What kind of checks can be built in? Should brokers be banned from distributing products belonging
IRDA is awaiting feedback and views from the industry till March 15, 2012.